The Price is Right

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A newscaster just informed me that “the market” was up yesterday. This man was quite chipper, presumably because “the market” has been plummeting for months. Nevertheless, I am skeptical. What does it mean for “the market” to go up or down? If you tell me that the price of corn has gone up, I can understand what that means. If you tell me that the price of flat-screen TVs has gone up, or the price of gold, or even the price of stock in a service company, I can understand that. I can even understand clearly and painfully that the average price of all the stock in my retirement portfolio has dropped precipitously.

But when almost every item being exchanged in the market rises or drops by a similar percentage, what does that mean? Did all these items suddenly become less valuable because the price dropped? Obviously, they are not less valuable in relation to one another, since they all dropped by a similar percentage. I find this true in my own life. The relative value I place on my home vs. my groceries vs. my entertainment vs. my car repair is really about the same as it’s ever been. I haven’t suddenly decided that my groceries are less valuable than my car repair. Have you?

In relation to what, then, are all these things worth less? Perhaps one of Adam Smith’s Big Three? Labor, rent, interest? I’m not an economist. I don’t know. Actually, I’m not sure the economists know either, at least not the ones quoted by government administrators and newscasters.

When the relationship between two items changes radically – for example the relationship between U.S dollars and goods and services exchanged in the market – it is good to look at both sides to see what’s really happening. U.S. dollars are money, and money is, by definition, the receptacle of pricing information. In this particular case it seems obvious to me that “the market” is not really changing so drastically. Rather, pricing information is being distorted drastically.

That may seem merely semantic, but the language we use to describe a problem affects our ability to solve it. If you imagine the problem from the perspective of “the market,” you will see it plummeting or bouncing like a yo yo. You will imagine, as Congress and newscasters and presidential administrations have, that the only way to stop it is to prescribe more and more drastic price distortions. Only when you imagine the problem from the perspective of pricing information do you realize that “the market” is not going anywhere. Rather, pricing distortions are wreaking havoc on our ability to trade.

Why are we so enamored of the wrong semantics?

Alexis de Tocqueville noticed that historians in aristocracies worked to identify the individual action of an individual man as the cause of a given historical event. They would go out of their way to find this individual attribution, ignoring most other, external causes. He noticed that historians in democracies tend to do just the opposite – to attribute grand, abstract, external causes to even the most trivial events, ignoring the individual actions of individual men. Because men in democracies tend toward equality, and hence mediocrity, an individual in a democracy is obviously not interesting enough or powerful enough to be the sole cause of any event. De Toqueville also noticed our love of the abstract over the specific, and traces that love to similar characteristics of democracies.

News gatherers, journalists, and commentators combine as our modern-day, de facto historians. They collude with us, their audience, to give us the historical explanations we want. And they follow de Toqueville’s recipe to the letter. Although they haven’t identified it yet, our journalists see some vague, abstract force out there affecting “the market.” And we (yes, that is the collective “we”) should be able to counteract that vague abstract force if we can just apply enough hope and tinkering.

It is this same love of abstract sloppiness that causes us to wage our wars against abstract concepts and inanimate objects, be they poverty, drugs, or terror. Our journalists slop out these vague words because we lap them up. It is much more difficult and complex to think about the more semantically accurate “war against marijuana users” or the “war against the citizens of Iraq” or the “war against the homeless.” Unfortunately, because of our inability to think about our world in a semantically accurate manner, I have no doubt the tinkerers will have the same amount of success in affecting “the market” as they have on poverty, drugs, and terror.

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